Deal: FTX US To Buy Embattled Crypto Lender BlockFi For Up To $240M
The latest acquisition of note is coming from the cryptocurrency sector. FTX US, the American subsidiary of Bahamas-based crypto exchange FTX, is acquiring BlockFi, a crypto lending platform that has experienced turbulence due to the recent bloodbath in the industry.
- BlockFi allows cryptocurrency owners to earn interest on their holdings through loans to retail and institutional investors, akin to a bank but without the usual regulations and customer deposit protections.
- Three Arrows Capital, a multi-billion dollar crypto hedge fund that recently filed for bankruptcy, was one of BlockFi’s main lendees. The crypto lender lost $80mn due to the hedge fund’s inability to pay back debt.
According to a tweet from BlockFi’s CEO, Zac Prince, FTX US signed a definitive agreement to buy the company “at a variable price of up to $240M based on performance triggers.” It’s unclear what part of that sum will be paid upfront and what part will be paid based on the performance triggers.
A day before the formal announcement, CNBC reported that FTX was closing in on a deal to buy BlockFi for just $25mn. It’s possible that that sum represents the agreed upfront payment, but there’s no official confirmation at this point.
- FTX US also agreed to provide a $400mn credit facility to BlockFi that’s “subordinate to all client funds,” that is, won’t be paid except customer deposits are settled.
No matter how one tries to frame it, this acquisition is objectively distressing for BlockFi, which has raised $450mn in equity funding, most recently at a valuation of $3bn. The company’s investors include notable names like Paradigm, a crypto-focused VC fund; Peter Thiel’s Valar Ventures; and Susquehanna International Group, a quant trading giant.
BlockFi is selling for a price that equals almost half of its total equity financing and magnitudes less than its paper valuation, effectively a fire sale.
- FTX is a popular crypto exchange founded by Sam Bankman-Fried in 2019 and has been very successful, with billions of dollars traded on its platform daily. It has raised $1.7bn from VCs, most recently a $400mn round (this January) that valued the company at $32bn.
- FTX US is a separate subsidiary that serves American users, due to regulations preventing the main FTX from offering certain types of products (e.g., crypto derivatives and prediction contracts) in the country. This subsidiary raised $400mn at a valuation of $8bn early this year.
Buying BlockFi is a strategic way for FTX US to expand its reach in the American crypto markets. The company is a shrewd acquirer capitalizing on the recent crypto market slump to buy a well-known industry name on the cheap.